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The Obamacare to Come

Dems’ health-care plans do not provide the reform most
Americans seek.

Drip by painful drip, the details of the Democratic
health-care-reform plan have been leaking out. And from what we can
see so far, it looks like bad news for American taxpayers,
health-care providers, and, most important, patients.

The plan would not initially create a government-run,
single-payer system such as those in Canada and Britain. Private
insurance would still exist, at least for a time. But it would be
reduced to little more than a public utility, operating much like
the electric company, with the government regulating every aspect
of its operation.

The net result would be
an unprecedented level of government control over one-sixth of the
U.S. economy, and over some of the most important, personal, and
private decisions in Americans’ lives.

It would be mandated both that employers offer coverage and that
individuals buy it. A government-run plan, similar to Medicare,
would be set up to compete with private insurers. The government
would undertake comparative-effectiveness and cost-effectiveness
research, and use the results to impose practice guidelines on
providers. Private insurance would face a host of new regulations,
including a requirement to insure all applicants and a prohibition
on pricing premiums on the basis of risk. Subsidies would be
extended to help middle earners purchase insurance. And the
government would subsidize and manage the development of a national
system of electronic medical records.

The net result would be an unprecedented level of government
control over one-sixth of the U.S. economy, and over some of the
most important, personal, and private decisions in Americans’
lives.

Let’s look at some of the most troubling ideas in detail.

An employer mandate. Employers would be required to
insure their workers through a “pay or play” mandate. Those who did
not provide “meaningful coverage” for their workers would pay a
penalty, equal to some percentage of their payroll, into a national
fund that would provide insurance to uncovered workers. Such a
mandate is, of course, simply a disguised tax on employment. As
Princeton University professor Uwe Reinhardt, the dean of
health-care economists, points out, “[That] the fiscal flows
triggered by mandate would not flow directly through the public
budgets does not detract from the measure’s status of a bona fide
tax.” Estimates suggest that an employer mandate could cost 1.6
million jobs over the first five years.

An individual mandate. As is the case with an employer
mandate, an individual mandate is essentially a disguised tax. It
is also the first in a series of dominoes that will lead to greater
government control of the health-care system.

To implement an insurance mandate, the government will have to
define what sort of insurance fulfills it. As the CBO puts it, “an
individual mandate … would require people to purchase a
specific service that would have to be heavily regulated by the
federal government.” At the very least, deductible levels and
lifetime caps will have to be specified, and a minimum-benefits
package will likely be spelled out. This means the oft-repeated
promise that “if you are happy with your current insurance, you can
keep it” is untrue. Millions of Americans who are currently
satisfied with their coverage will have to give it up and purchase
the insurance the government wants them to have, even if the new
insurance is more expensive or covers benefits the buyer does not
want.

A “public option.” The government would establish a new
universal-health-care program, similar to Medicare, that would
compete with private insurance. Regardless of how it is structured
or administered, such a plan would have an inherent advantage in
the marketplace because it would ultimately be subsidized by
taxpayers. It could, for instance, keep its premiums artificially
low or offer extra benefits, then turn to the U.S. Treasury to
cover any shortfalls. Consumers would naturally be attracted to the
lower-cost, higher-benefit government program.

A government program would also have an advantage because its
tremendous market presence would allow it to impose much lower
reimbursement rates on doctors and hospitals. Government plans such
as Medicare and Medicaid traditionally reimburse providers at rates
considerably below those of private insurance. Providers recoup the
lost income by raising prices for those with private insurance. It
is estimated that privately insured patients pay $89 billion
annually in additional insurance costs because of cost-shifting
from government programs. If the new public option would have
similar reimbursement policies, it would result in additional
cost-shifting of as much as $36.4 billion annually. Such
cost-shifting would force insurers to raise their premiums, making
them even less competitive with the taxpayer-subsidized public
plan. Lewin Associates estimates that as many as 118.5 million
Americans, nearly two out of every three people with insurance,
would shift to the government program. The result would be a death
spiral for private insurance.

Given that many of the most outspoken advocates of the “public
option” have, in the past, supported a government-run single-payer
system, it is reasonable to suspect they support a public option
precisely because it would squeeze out private insurance and
eventually lead to such a system. President Obama himself has said
that if he were designing a health-care system from scratch, his
preference would be a single-payer system “managed like Canada’s.”
He has also said that, while his proposal is a less radical
approach, “it may be that we end up transitioning to such a
system.”

Comparative- and cost-effectiveness research. In an
attempt to control health-care costs, the government would
undertake research to determine which health-care procedures and
technologies are most effective and, more ominously,
cost-effective. Of course, there is a great deal of waste in the
U.S. health-care system, and if the government’s goal were simply
to provide better information there would be little cause for
concern. But there is every reason to believe such research would
be used to impose restrictions on how medicine is practiced. For
example, some reform advocates have said that when an insurance
company fails to comply with government practice guidelines,
workers should no longer be able to exempt the value of that
company’s plans from their taxable income.

There is no doubt that other countries use
comparative-effectiveness research as the basis for rationing. For
example, in Great Britain, the National Institute on Clinical
Effectiveness makes such decisions, including a controversial
determination that certain cancer drugs are “too expensive.” The
U.K. government effectively puts a price tag on each citizen’s life
— about $44,305 (£30,000) per year, to be exact, under NICE’s
guidelines. That’s just a baseline, of course, and, as NICE
chairman Michael Rawlins points out, the agency has sometimes
approved treatments costing as much as $70,887 (£48,000) per year
of extended life. But such treatments are approved only if it can
be shown they extend life by at least three months and are used for
illnesses that affect fewer than 7,000 new patients per year.

The final health-care-reform bill is likely to include a number
of other bad ideas: a host of new insurance regulations that will
drive up costs and limit consumer choice (under one leaked
proposal, Americans would be limited to a choice of four
standardized insurance plans); subsidies for middle-class families
(a family of four earning as much as $83,000 per year would receive
subsidized care under one proposal); and government preemption of
private investment and research into health IT. All of this would
come at a cost to taxpayers of at least $1.5 trillion over the next
ten years.

The American people are right to demand health-care reform. The
current system is broken. But taken individually, most of the ideas
currently being considered by Congress would make the problems we
face even worse. Taken together, they amount to a complete
government takeover of the American health-care system. That is not
the type of reform most Americans seek.